Once the non-productive asset like urban land is converted into a productive asset like a building which qualifies for exemption, then the assessee can start availing exemption even during the period of conversion of such non-productive asset to productive asset.
HIGH COURT OF KERALA Appollo Tyres Ltd. v. ACIT WTA No. 197 of 2009 December 7, 2009 RELEVANT EXTRACTS: ** ** ** ** ** ** ** ** ** ** ** ** 5. We feel, for interpreting the provisions of the amended statute, we have to keep in mind the recommendations of Dr. Raja Chelliah Committee report based on which the Wealth Tax Act is recast. Admittedly the assessee utilised the urban land for construction of a commercial building which qualifies for exemption from wealth tax. The department has no case that after construction of the Commercial building urban land on which the building was constructed can be separately assessed. On the other hand, once the land is utilised for construction of a commercial building the value of the land and building enjoy exemption as a productive asset specifically covered by sub-clause (3) of Section 2(ea)(i) No doubt urban land is specifically covered by definition clause of "asset" and is subject to wealth tax. However, urban land acquired for industrial purpose enjoys tax holiday from wealth tax for two years from the date of acquisition by the assessee. If the land is not utilised for industrial purpose within two years, the value of such urban land will be subject to wealth tax from the year following. The controversy is whether commencement of construction of the building for commercial or industrial purpose is use of the land for such purpose qualifying for exemption or whether exemption is available only on completion of construction of the building, and after building is put to use for industrial purpose. While the contention of the assessee is that commencement of construction of the building on the urban land itself is use of the building for industrial purpose, the contention of the revenue on 'the other tend is that unless the building is constructed and put to use ferrjndtostrial impose the land cannot be said to have been used tor industrial purpose. In other words, according to revenue, value of urban land could be assessed to wealth tax until completion of constriction of the building and until commencement of use of such building for commercial or industrial purpose. We are unable to agree with the contention of the revenue because in our view urban land that is subject to tax under the definition of "assets" generally covers only vacant lands. In fact, under the exception clause” the land occupied by any building which has been constructed with the approval of the appropriate authority" is exempt from the purview of tax. This provision makes it clear that when urban land is utilised for construction of a building with the approval of the prescribed authority, then the land ceases to be identifiable as urban land\ What the Section contemplates is that if an illegal construction is made on an urban land, that is construction without approval by the appropriate authority, then such land will still be treated as urban land no matter building is illegally constructed thereon. However, if a building is constructed with the approval of the prescribed authority, then such land goes out of the meaning of "urban land” and what is assessable is obviously the building which in this case on completion falls within the exception clause. Now the question to be considered is whether during the period of construction of the building., the urban land on which such construction is made could be assessed to wealth tax. hi our view, once the land is utilised for construction purposes, the land ceases to have it's identity as vacant land and it cannot be independently valued and considering the value of the building under construction the land value may be insignificant. It is pertinent to note that building under construction which is work- in-progress is not brought within the definition of "assets" for the purpose of levy of wealth tax Department does not dispute the fact that as and when construction of building is complete on the urban land, there can be no separate assessment of urban land, but assessment is only on the value of die building, if it is not exempted from tax. In this case, admittedly commercial building constructed by the appellant- assessee falls within the exemption clause as commercial building and so much so it is not subject to wealth tax. There is no dispute that the land was allotted for commercial purpose which covers industrial use as well. Without construction of the building, the land cannot be used for the purpose for which it was allotted and in our view, the commencement of construction is use of the land to industrial purpose. However, this does not mean that part construction and abandoning further construction will entitle the assessee for exemption because part construction without completion of construction of the building cannot be said to be use of the land for commercial or industrial purpose. However, admittedly in this case, the assessee progressively completed construction of a four stoned building with basement and started using it within the course of two years from the valuation date. The assessee cannot be expected to complete construction of a four storied massive building m the course of two years which is the period provided in Explanation [b] lo Section 2(ca). Keeping in mind the exemption available to productive assets we feel, there is no scope for law of tax during' the period of construction of the productive asset, namely, commercial .building, by utilising the urban land. In other words, once the non-productive asset like urban land is converted to a productive asset like a building which qualifies for exemption, then the assessee can start availing exemption even-during the period of conversion of such non-productive asset to productive asset. We therefore declare the eligibility of the assessee for exemption for urban land on which they were constructing a commercial building on the valuation date. Consequently we allow the appeal reversing the order of the Tribunal and restoring that of the first appellate authority.